China Energy Reserve, a would-be real estate magnate, misses payment on US$350 million bond

China Energy Reserve & Chemicals Group Co. said it hasn’t paid a US$350 million bond that matured earlier this month, in the latest example of China’s deleveraging campaign choking off financing for some companies.

The oil and gas producer, which has US$1.8 billion of offshore notes outstanding, cited “tightening in credit conditions” for the default. The company plans to suspend this year’s interest payments on bonds due in 2021 and 2022 while it considers asset sales and seeks to restructure the notes, China Energy said in a filing that appeared on the Hong Kong exchange on May 27.

China Energy rose to prominence earlier this year when it pulled out of a US$5.2 billion deal to buy a Hong Kong skyscraper from Li Ka-shing’s company, after making an unsuccessful bid for Australian oil and gas explorer AWE.

The company’s refinancing woes show China’s deleveraging efforts are taking a toll on funding for the corporate sector, particularly via a crackdown on shadow financing. The yield spread on three-year AA rated bonds, considered high-yield in China, over top-rated peers has risen 28 basis points this year to the highest since June 2017.

“The default adds to the jitters for China dollar bonds,” said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group. “Access to funding onshore has been restricted for some time and this is now starting to cause stress as companies need to refinance.”